For Future Group, transactions through cards have gone up to nearly 87% now, from about 35% before the withdrawal of Rs 500 and Rs 1,000 notes.MUMBAI: India's largest grocer Future Group has written to consumer goods companies to extend credit days and offer additional discounts on their merchandise so it can be passed to consumers who have been inconvenienced due to demonitisation.

"We would request you to extend an additional 20-day credit for our purchases from your organisation so that we can remain well stocked up. We also urge you to extend the 5% additional discount, which we will pass on all purchases made by us," said Kishore Biyani in a letter sent to FMCG companies late Monday evening.

The retailer that owns 800-odd stores including Big Bazaar, Easyday, Nilgiri's and Heritage Fresh has introduced a flat 5% additional discount on all food and grocery purchases which in turn increased its merchant cost due to cashless transactions. For Future Group, transactions through cards have gone up to nearly 87% now, from about 35% before the withdrawal of Rs 500 and Rs 1,000 notes.

"Sales are up nearly 30% during weekdays and about 50% on weekends mainly driven through discount that we are offering. But due to cashless payments, there is an added cost to us," Biyani told ET. "The average ticket size has increased to Rs 1400 from Rs 1100 earlier."

Globally, consumer companies share a love-hate relationship with retailers by using bargaining power to beat down prices, while retail chains introduce their own cut-price versions or private labels of these mass-produced products. But now the move comes at a time when consumer goods industry grew marginally by 1% in volume in the September quarter and most companies were looking to ramp up promotions and offers to persuade consumers to loosen purse strings. And for most of them, supplying to kiranas that account for nearly 72% of their sales will be an ordeal.

As much as two-thirds of kirana stores are having a hard time buying stocks from consumer goods distributors and with a squeeze on both purchase and sales and business is down for 70% of the neighbourhood outlets in the last few days, according to a recent Nielsen report. Several wholesalers and distributors have also been avoiding small towns and rural areas altogether as they mainly dealt with cash transactions.

Just over 1% of stores had non-cash payment modes such as credit and debit cards, e-wallets or meal coupons due to higher costs. For instance, a kirana store will have to shell out at least 1.7% to nearly 2.5% on merchant fees and telephone cost incase it opts for cashless transaction option, a huge challenge for a format that operates on 7% margins. Hence, modern trade, which operates on digital payments are fast becoming one of the last bastion of growth for most consumer goods amid piling up stocks at local kiranawallahs and distributors.

"It is not an unviable idea except that on consumer end of the spectrum and in terms of availability of cash, there has also been a lot of focus on essential products in last couple of days. Consumers are going to focus on whether they have enough essential products and then they would start looking at discretionary products like ours. The issue really is that the trade channels need a necessary amount of lubricant which is money to carry out transactions," said Suresh Narayanan, CMD, Nestle India.

Several companies including Hindustan Unilever, Colgate, Nestle and Britannia have agreed in-principle to provide either extra credit days or discounts ranging between 2-5% and additional margins to Future Group or both. "While it is not possible to give discounts, we can certainly look at extending credit period," said Varun Berry, MD at Britannia Industries.

The retailer, that historically stocked large sized stock keeping units, now plan to keep smaller packs that companies generally sell through local kirana stores as most consumers have been opting for such packs.

"We are definitely very open to proposals from trade but I think the need for the hour would be for consumers to actually start coming to stores," said Vivek Gambir, MD at Godrej Consumer Products. "We have been selectively offering credit to distributors as well particularly to be able to improve the situation for them."

But such credit will only facilitate business with directly serviced stores and leave out the bulk of the nine million retailers across India who buy from wholesalers. Analysts, however, feel it could change soon. "The trade will become more organized – as the wholesalers who deal in cash will move towards dealing in cheque, on line and hence will reduce under reporting. Also the industry will also move towards becoming more organized," said Abneesh Roy, senior vice president, Edelweiss Securities.

But not everyone is buying into Future Group's latest initiative. Many companies feel that favouring modern trade retailers could see increased price gap when compared with local grocers. "We can't afford to encourage such move to maintain a level playing field. Also, dairy operates on thin margins which will be difficult to lower," said RS Sodhi, MD at the country’s biggest dairy federation Gujarat Cooperative Milk Marketing Federation that owns Amul.

"Even we had to take production cuts and have stock pile ups. Hence, we we are not in a position to pass on the additional discounts as we are tight on margins already," said B Krishna Rao, deputy marketing manager at Parle Products.

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